Let the rant begin:

I think it’s an absurd idea that things like labor are taxed at all (via income taxes), when labor is a productive activity. Meanwhile there are so many unproductive or outright harmful activities that don’t get taxed nearly enough! Land speculation, carbon emissions, other forms of pollution, monopolistic control of finite natural resources, etc.

Further, even from a solely economic point of view, taxing things discourages them and distorts the market. Taxing carbon is a known way to reduce carbon emissions. Why don’t we choose to distort the things we want to be distorted anyways, like pollution and rent-seeking behaviors?

Further, there is ample evidence to suggest we genuinely don’t need income taxes to fully fund our government. I (and many others) are in favor of 3 main types of taxes:

  1. Land value taxes
  2. Pigouvian (or externality) taxes
  3. Severance taxes

Land Value Taxes

A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements.[1] It is also known as a location value tax, a point valuation tax, a site valuation tax, split rate tax, or a site-value rating.

Land value taxes are generally favored by economists as they do not cause economic inefficiency, and reduce inequality.[2] A land value tax is a progressive tax, in that the tax burden falls on land owners, because land ownership is correlated with wealth and income.[3][4] The land value tax has been referred to as “the perfect tax” and the economic efficiency of a land value tax has been accepted since the eighteenth century.[1][5][6] Economists since Adam Smith and David Ricardo have advocated this tax because it does not hurt economic activity, and encourages development without subsidies.

LVT is associated with Henry George, whose ideology became known as Georgism. George argued that taxing the land value is most logical source of public revenue because the supply of land is fixed and because public infrastructure improvements would be reflected in (and thus paid for by) increased land values.[7]

https://en.wikipedia.org/wiki/Land_value_tax

In 1977, [Nobel prize-winning economist] Joseph Stiglitz showed that under certain conditions, beneficial investments in public goods will increase aggregate land rents by at least as much as the investments’ cost.[1] This proposition was dubbed the “Henry George theorem”, as it characterizes a situation where Henry George’s ‘single tax’ on land values, is not only efficient, it is also the only tax necessary to finance public expenditures.[2] Henry George had famously advocated for the replacement of all other taxes with a land value tax, arguing that as the location value of land was improved by public works, its economic rent was the most logical source of public revenue.[3]

Subsequent studies generalized the principle and found that the theorem holds even after relaxing assumptions.[4] Studies indicate that even existing land prices, which are depressed due to the existing burden of taxation on labor and investment, are great enough to replace taxes at all levels of government.[5][6][7]

Pigouvian Taxes

A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the government to correct an undesirable or inefficient market outcome (a market failure) and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product.[1] Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.[2]

https://en.wikipedia.org/wiki/Pigouvian_tax

A carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary. By correcting a well-known market failure, a carbon tax will send a powerful price signal that harnesses the invisible hand of the marketplace to steer economic actors towards a low-carbon future.

https://archive.is/TYVWT#selection-2043.3-2043.318

Severance Taxes

Severance taxes are taxes imposed on the removal of natural resources within a taxing jurisdiction. Severance taxes are most commonly imposed in oil producing states within the United States. Resources that typically incur severance taxes when extracted include oil, natural gas, coal, uranium, and timber. Some jurisdictions use other terms like gross production tax.

https://en.wikipedia.org/wiki/Severance_tax

The key to Norway’s success in oil exploitation has been the special regime of ownership rights which apply to extraction: the severance tax takes most of those rents, meaning that the people of Norway are the primary beneficiaries of the country’s petroleum wealth. Instead of privatizing the resource rents provided by access to oil, companies make their returns off of the extraction and transportation of the oil, incentivizing them to develop the most efficient technologies and processes rather than simply collecting the resource rents. Exploration and development is subsidized by the Norwegian government in order to maximize the amount of resource rents that can be taxed by the state, while also promoting a highly competitive environment free of the corruption and stagnation that afflicts state-controlled oil companies.

https://progressandpoverty.substack.com/p/norways-sovereign-wealth-fund

Inequality

Specifically, I suggest that much of the increase in inequality is associated with the growth in rents — including land and exploitation rents (e.g., arising from monopoly power and political influence).

https://academiccommons.columbia.edu/doi/10.7916/d8-t92w-f529

  • JVT038English
    1·
    1 year ago

    Yeah, I agree this is where things get messier. There are clearly many capital investments that are productive, but many like speculative day-trading of stocks that are not. For example, it’s very common in tech to pump up your profitability right before your IPO (by doing unsustainable business practices to boost revenues and cut expenses) so you and your early investors can cash out. The majority of tech startups’ stocks drop after the price at IPO. It essentially leaves those who buy in at IPO holding the bag for the early investors’ partially unearned profits. Where it gets sticky in this example is those profits are only partially unearned, i.e., some is legitimate returns on their investment in a productive new startup, but some is from overselling to eager and naive public investors at IPO thanks to asymmetry of information. (Asymmetrical information is a classic cause of market failure; if people don’t know the true value of what you’re selling them, they won’t buy the optimal amount at the optimal price.) As for solutions, I actually don’t know. Is it easy or even possible for a tax to discern between the earned vs unearned profits of something like that? If we do try to solve this market failure via taxes, is it easy to evade with fancy accounting, or does it cause unintended side effects? I don’t really know enough about finance to propose many solutions here. At least in theory, the purpose of a stock market is to allow anyone to invest in a company, allowing that company to raise funds for growth and reinvestment, and we certainly don’t want to discourage that, but of course speculative day-trading is not good either.

    You can actually kind of tax these kind of capital investments, because there is a difference between the Apple Inc. shares I buy from you vs the shares I buy directly from Apple Inc. The shares I buy from you, are just called ‘shares’ whereas the shares I buy from the company are ‘issued shares’, which basically means that the shares are recently ‘issued’ (aka being made available to the public). Could a tax agency track who buys which shares and what type of share they are? Yes, with enough resources and manpower, definitely. The Dutch tax agency already taxes investments and they could probably track whether you’ve bought an issued share or a normal share (or a preference share). The tax agency could decide to tax transactions of ordinary shares, but grant exemptions to issued shares, because the issued shares actually contribute to the economy. Though this does lead to a loophole where someone could just set up their own small LLC, start an IPO, invest all their personal wealth and buy stocks, and then just request a tax exemption for this (similar to how people set up their own non-profits and donate to that). And about your point of the asymmetric information: Yes, that’s true, the company could lie about their productivity and/or future plans, but that’s the risk about investing, and it doesn’t only apply to new startups, but also to established corporations. The risk can’t be eliminated, and it’s just a thing that’s part of investing.

    Currently, I’m working as an engineer in a niche field, which means I get good pay, good treatment, and good work-life balance. This is because it’s hard to replace me, because plenty of people want to hire my skillset but not so many people have it to offer. If the average laborer had more fallback options – like UBI, pursuing higher education, planting trees for money, etc. – and less economic stress – like cheaper land and housing thanks to solving the housing crisis – I think they could naturally demand more pay, better conditions, and better work-life balance.

    Well yeah, this makes sense, because your wage is based on how hard it is to replace you, not about how much you contribute to society or how good you are at your job. Additionally, I think this is the reason why the elite classes in our society usually try and ensure that the labor class is always too poor to actually stand up for themselves; too poor to have a retirement (and stop working), too poor to have fallback options, and too poor to go on strike. Simultaneously, they don’t want the inequality to become big, because otherwise you’ll have a big group of people with nothing to lose, except their (probably) worthless lives. And thus a repeat of the French Revolution in 1789 will occur, where the masses will have had enough of the oppression and take over the country. (This is also what Marx said would happen, with the violent uprising of the proletariat). Anyway, I feel like I’ve completely changed the conversation subject now; from taxes to Marxist class theory.

    (Continued in reply)

    • JVT038English
      1·
      1 year ago

      I don’t know if you saw it in the Netherland, but I know the US and Canada saw something like this with the worker shortage during and post-COVID with the “great resignation” as they called it; suddenly there were lots of people needing labor, but not as many people providing it, meaning employers had to offer better deals to the workers.

      Yup, we’ve also had it here. It’s kinda funny to see how employers refuse to increase wages, yet complain there aren’t any people willing to work for them.

      A hefty pedestrian/cyclist fatality tax applied to automakers every time a pedestrian/cyclist is killed by one of their cars so as to encourage designs that protect the people outside of cars, not just inside of them.

      Oooh, this is interesting. Alright, question: If a car is on autopilot (like the Tesla cars who can drive themselves) kill someone, who’s responsible? The driver, the programmer of the driving software, the company, someone else? Also, how would a car be designed to make it safer for people outside the cars? Put up a bunch of pillows on the sides or… ?

      I don’t know enough about finance to personally propose taxes for it, but I’m sure one could argue for some specific taxes to address some of the previously-mentioned issues in stock speculation and IPOs.

      I would suggest a tax on dividend (this would encourage the shareholders to re-invest the money into the company, instead of just giving it away to the shareholders), and a tax on buying non-issued shares (This would discourage investors into buying shares that doesn’t directly benefit the company itself).

      I’ve seen arguments for Harberger taxes on intellectual property as part of IP reform. My personal thoughts is to just abolish patents and publicly subsidize open R&D instead, through prizes, grants, and large public projects like the Apollo Program. After all, not all R&D is suited to private development anyways, e.g., nuclear fusion, which is far too expensive and far too uncertain to be an attractive private investment. I could, however, see the argument for some form of Harberger taxes in conjunction with more IP reforms.

      Well, I guess this is it. After a couple of long essays, we’ve finally hit a disagreement. I think that this is not a good idea (to put it lightly), because it would discourage innovation and creativity. Furthermore, extremely expensive technology (such as nuclear fusion) would be better funded by private capital / investors than the government. Though the government could definitely fund it (The Netherlands has a government fund called ‘Invest NL’ which basically gives away grants of tens of millions of euros to private companies), it’s too expensive to completely subsidize it. Some technologies cost hundreds of billions of euros to make and research, which would probably result into a situation where the majority of the government budget is giving away grants to research institutions. Instead, allowing private investors to invest into companies, acquire patents and such would allow science to flourish (as there is plenty of money in the private sector). To be clear, I’m not against the government subsidizing R&D, I’m against R&D being completely dependent on government subsidies. Also, some of the most expensive technology is already being funded by the government, such as the EU Chip Act which grants more than 40 billion euros to chip companies.

      Yes, according to the Henry George Theorem, public goods can be funded entirely by their resulting increase in LVT revenues

      Then why has nobody ever done this before? I mean, if a random internet stranger such as you can come up with this, then why can’t a government policy maker?

      I think there are two main scenarios to consider here: 1) the short-term transition period, and 2) the long-term equilibrium. In the short term, yes, there are definitely some owners of single-family detached homes who would need to move, but I think that’s an unavoidable part of solving the housing crisis anyways. I don’t know the situation in the Netherland, but in the US and Canada we have the issue of almost all our urban land being zoned for SFHs, and simply there is no fixing the housing crisis here without many of those being redeveloped into missing middle housing or denser. However, the beauty of LVT is it’s meant to target the full rental value of the land, i.e., how much you could rent the land for on the open market. So if you find yourself unable to pay the LVT due to unfortunate circumstances, because you still possess the land, you have the option of renting out the land to pay it, and yourself renting someplace cheaper that you can afford off of UBI/citizen’s dividend. After all, the LVT due is supposed to be the rental value of the land, i.e., if you can rent it for $100 a month, you pay $100 a month in taxes. Realistically, though, due to difficulty in appraising with such high degree of accuracy, I’ve generally seen it recommended you shoot for 85% to 100% of the rental value of land. 'Tis better to slightly under-appraise than to over-appraise.

      I guess you’re right and I think it’s a bit disappointing that the LVT would displace poor families, yet simultaneously the government could probably fund a free homeless shelter from the LVT revenues I guess. No perfect policy can be made though, as everything has its disadvantages, including the LVT.

      This is actually an open question. I’d personally be fine with annually or monthly. I’ve seen proposals for paying it when the landowner dies as an option to protect pensioners. Perhaps a land value transfer tax that is applicable for certain people who qualify? Downside is any conditions like that 1) introduce significant bureaucracy, and 2) introduce an avenue by which to potentially evade the LVT. As for percentage, the idea would be to target the full rental value of the land, but even smaller land value taxes can still have benefits, just not as many.

      I honestly don’t think the bureaucracy is such a big problem, as long as it can be significantly automated so that it doesn’t become a big burden for the tax agency.

      I feel like such a tax should be affordable though, at least for the middle class and poor people. So I’m not sure if a monthly tax would be affordable. Instead, I would opt for an annual tax of like 20% or something. I mean, people already pay income taxes of 30 - 40 percent, so 20 percent annually of your land’s value isn’t that much, compared to the usual income taxes IMO.

      Additionally, maybe the LVT would be paid based on the total value of all land you own? In this case, there could be an exemption for the first €100k of the value of your land or something, so that poor families don’t have to pay the LVT and that the tax starts at a rate that should be affordable for the people who can afford to buy land worth at least 100k. This can’t be circumvented by buying lots of smaller pieces of land, because the tax would be based on the total value of your all your property combined.

      If we did a revenue-neutral shift from property to land value taxes, for instance, we’d still need income taxes, but we could still cool upward speculative pressure on land prices such as seen in the Australian Capital Territory (which has a pretty milquetoast LVT, nowhere near the full-LVT system I’m arguing for).

      I’m sorry, but what do you mean with this?